Lesaka Technologies, Inc. (LSAK) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Net 1 Ueps Q4 and Full Year 2015 Earnings Call. [Operator Instructions] Please also note that this call is being recorded. With that, I'd like to hand the call over to Dhruv Chopra. Please go ahead.

Thank you, John. Welcome to our fourth quarter fiscal 2015 earnings call. With me today are Dr. Serge Belamant, our Chairman and CEO; and Herman Kotze, our CFO. Both our press release and Form 10-K are available on our website, www.net1.com. As a reminder, during this call, we will be making forward-looking statements, and I ask you to look at the cautionary language contained in our press release and Form 10-K regarding the risks and uncertainties associated with forward-looking statements. In addition, during this call, we will be using certain non-GAAP financial measures, and we have provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. We will discuss our results in South African rand, which is a non-GAAP measure. We analyze our results of operations in our 10-K and in our press release in rand to assist investors in understanding the underlying trends of our business. As you know, the company's results can be significantly affected by currency fluctuations between the U.S. dollar and the South African rand. So with that, let me turn the call over to Serge.

Thank you very much, Dhruv. Good morning to all of our shareholders. As I said in my quote last night, I'm thrilled with our fourth quarter and full year results, as they continue to demonstrate the quality, sustainability and momentum of our business model. We achieved USD 164.3 million in revenue and USD 0.58 in fundamental earnings per share, which, excluding the once-off SASSA recovery fee in quarter 4 of 2014, translates into 22% and 50% year-over-year growth in rands, respectively. We have made tangible progress in the transition of our business model through strong execution in our new initiatives like EasyPay Everywhere and ZAZOO, which are the pillars that will drive our company forward in the years to come. Herman will provide the details of our financial performance, while I want to focus on key strategic areas and the progress we are making in each of them. The first thing I want to highlight is that we now view our businesses across 3 distinct verticals, namely: cloud-centric solutions, which are driven primarily by UEPS/EMV biometrics smart-card technology, such as EasyPay Everywhere, our WFP MasterCard and SASSA; the second is our mobile-centric solutions, which focus on deployment of our various mobile products such as MVC, variable PIN and value-added services; and finally, transaction processing, which includes KSNET, EasyPay, FIHRST and other processes. These verticals are capable of operating independently of one another, but frequently supplement one or more of the others. More importantly, each vertical has a specific set of opportunities and go-to-market strategy. I will now spend a few minutes to elaborate on each of these. Our cloud-centric solutions leverage on our proven scalable and interoperable UEPS/EMV solution to address the fundamental emerging economy issue of financial inclusion. Financial inclusion, which essentially is to provide easily accessible and affordable financial services regardless of a person's social or economic status for the upliftment of a person's quality of life, is a term that is loosely thrown around by anyone and everyone, but more often than that, with no real solution beyond it. We are encouraged by the fact that we see more and more examples of governments or international agencies that are making far more concerted and thoughtful efforts to try and address this socioeconomic issue. One example is the efforts in India, as Prime Minister Modi and regulators try to promote financial inclusion. Initiatives like Aadhaar, which to date has biometrically registered about 900 million people; Jan-Dhan Yojana, which has seen 175 million new bank accounts opened; awarding of new bank licenses; the introduction of government-supported pension and insurance products and employment schemes; and a strategy to replace India's subsidy-based regime with a cash-based transfer to bank account demonstrates that India has put a lot of thought and strategy to actually try to achieve financial inclusion in its truest sense. The fact that biometric registration can only be done online, that there are only a few thousand biometric-enabled point-of-sale terminals for the entire country and that almost 50% of accounts open at 0 balances are all inhibitors, but issues that can eventually be solved by India, or have already been solved by our own UEPS/EMV in South Africa. Another example is the World Food Programme, where the WFP is not acting as a government working for its citizens but as a multinational organization that, through the distribution of food grants and vouchers, is effectively trying to accomplish a similar goal. The WFP, as you are aware, chose our proven solution, along with MasterCard, in 12 Southern African countries. Having witnessed the efficiency, accessibility, affordability and security of our technologies, we have now, jointly with MasterCard, tendered for WFP's worldwide project, which spans 80 countries representing in excess of 50 million people. We are very bullish about our prospect with WFP, but at this time, we do not have any clear visibility on the tender process and timing. Having said that, I am pleased to report that we have agreed terms on that current project and will commence our first deployment in the near future. What is particularly noteworthy is that the WSP is actually acutely aware of our successful deployment of UEPS/EMV, which, as you know, in South Africa, is completely operated by us. Therefore, in an effort to ensure the highest possibility of success, WFP have asked us to operate, at least at the initial stages, the first deployment. We will therefore be on the ground, launching, registering and operating the project as well as setting the operational blueprint. Thereafter, we will recruit and train local partners to execute on this blueprint going forward. One last example is the International Finance Corporation. The IFC, as you know, is a development organization of the World Bank that, through its investments, attempts to facilitate the broader development of the emerging economies. We are actively engaged with the IFC now to try to identify how the 2 organizations can work together to drive financial inclusion on a much larger scale. The 2 reasons I discuss these various initiatives is: first, to highlight that there is a lot more, what I call, real efforts on financial inclusion today, which in turn creates a larger opportunity for Net 1 and UEPS/EMV; and second, is that the South African government, the Ministry of Social Development and SASSA have already accomplished this feat using our technology. It is, therefore, no surprise that South Africa's success in creating financial inclusion received widespread attention and admiration from governments and organizations the world over. According to FinScope, over the last 10 years, the number of South Africans in the LSM 1-5 or the lowest income segment have declined from 67% of the population to 41% in 2014. Similarly, 75% of the population is banked today compared to only 46% 10 years ago. 20% of the population is still unbanked or served only by service providers. Interestingly between 2013 and 2014, the percentage of banked people only inched forward from 79% to 80%, but the percentage of people accessing services from the informal sectors surged from 51% to 56%. This essentially implies that even banked customers are not receiving the products they need from formal financial service providers and, therefore, have to rely on the informal sector, which is usually less safe and far more expensive. This is one of the gaps we intend to address with every pay everywhere -- EasyPay Everywhere. However, giving an individual access to a functional and accessible bank account is only the first step of financial inclusion. Once a person in empowered with an account, it is the responsibility of governments, organizations and us as service providers to educate them on how to use and manage their new found financial freedom for their long-term financial upliftment. As we all know, "With great freedom comes great responsibility." We have now embarked on an extensive education program in South Africa, both with SASSA and with EPE, what we call EasyPay Everywhere, account holders so they can understand how to manage their finances better, avail of various services and save for the future. Our cloud-centric business, thus, is an active and growing pipeline of opportunities along with partners like MasterCard and WFP. In Nigeria, with One Credit, we are trying to set up the right structure that will enable them to replicate what we have built and achieved in South Africa in order to tap a largely underpenetrated market. Similarly in Uganda, a country of about 40 million people, we are also in discussions with various local partners to potentially replicate the same Nigerian model. Coming back to South Africa. I have made some references to EasyPay Everywhere, which as we've communicated previously, is an integral part of our strategy to drive our unfettered and unencumbered efforts to providing financial inclusion to absolutely anyone in South Africa. We also believe that the successful buildup of this business will more than compensate for any loss of SASSA contract, if and when it were to go away. We are fortunate to have a head start because EasyPay is a well-known brand in South Africa. EasyPay Everywhere, or EPE for short, offers a free banking account that provides transactional functionality that enables customers to access microfinance, insurance products, money classes, bill payments, debit orders, a full suite of managing products, value-added services and mobile banking across the entire country. The mobile we have deployed is based on a pay-per-use basis rather than one that charges customers for services that they do not require or cannot afford. We commenced our efforts in a pilot during May 2015 across just a handful of branches, and we're extremely pleased with the customer adoption and response we received. We are still scaling up our branch and ATM infrastructure and will now be adding mobile branches in the near future. Having said that, we officially launched EasyPay Everywhere opportunity 6 weeks ago, and to date, we've already opened in excess of 140,000 EPE accounts. We currently have approximately 85 operational branches, and we have deployed 700 biometric and EMV-enabled ATMs. By the end of this calendar year, we expect to have in excess of 1,000 ATMs deployed, mostly in underserved areas, and a further 25 physical branches activated. The 700 ATMs we have deployed are already processing approximately 600,000 transactions per month, and we are currently building around 4,000 new EPE customers every day. As our branch and mobile branch network further expands, we believe we should be able to add in excess of 150,000 new EPE accounts every month. Finally, under our cloud-centric solutions, our SASSA project continues to work seamlessly and without any issues. We have not received any updates on SASSA pertaining to the current tender. We did, however, approach SASSA to try and discuss the general terms for a possible phase out, which will become applicable if SASSA were to award the tender to 1 of the 3 bidders. SASSA, however, advises that such discussions are premature and that it is too early for them to start applying their mind to the phase-out process. Moving now to our mobile-centric businesses, which are centered around ZAZOO. We have now established our U.K. office for ZAZOO and are actively engaged in staffing up to meet the current and future pipeline of projects. We are achieving this by: a, deploying [ph] specialist technology resources from South Africa with big technical and product expertise; and b, hiring additional local staff on just [ph] the technical and business development side. At this point, I also want to point out that Net 1 is in the process of establishing an executive office in London, as its executive management team intends to split its time between Johannesburg and London going forward. The majority of our mobile-centric solutions, particularly in Europe, North America, Asia-Pacific and Africa, will be managed from ZAZOO in London, while the majority of our cloud-centric solutions will be driven from Johannesburg into Africa and other emerging markets. ZAZOO's differentiated product suite, including Mobile Virtual Card and variable PIN, enables it not only to work seamlessly with Net 1's cloud-centric solutions but to be offered on a completely stand-alone basis to any potential partner anywhere in the developed or developing world. From a financial and metric perspective, ZAZOO's revenue exceeded $120 million in fiscal 2015 and grew 71% over 2014 in constant currency. ZAZOO processed more than 275 million transactions in 2015, 90% higher than 2014. As you can see from our recent announcements, ZAZOO has signed a number of deals with Microsoft, Uber, BitX, Funifi in the past few months, and its top line is still building. In both our Funifi and BitX announcement this month, MVC is being used in order to solve an interoperability challenge, which is consistent with what we view as a key value proposition for MVC, namely providing security for e-commerce or card-not-present transactions, providing accessibility for those who do not and cannot get a physical card and providing interoperability to closed-loop systems. Similarly, variable PIN is designed to ensure unmatched security for physical cards, irrespective of whether they are magnetic stripe cards or chip-and-PIN cards. Much like MVC, a variable PIN is created offline on the user's mobile handset and accessed biometrically. We are also in the process of identifying the best solution that will allow us to issue cards or Virtual Card ourselves without paying away a large portion of the acquiring and issuing fees to third parties. We are focusing our initial efforts on the European economic zone, and we'll keep you updated on our progress. Shifting geographies to India. We are very pleased to announce that we are partnered with Oxigen, one of the first and most established prepaid providers in the country, to deploy MVC technology. As I just stated, our strategy for MVC is to solve real-world challenges, particularly in the case of accessibility and interoperability. Prepaid providers in India operate in a closed or semi-closed-loop development and therefore, MVC, through a mobile device, of which there is no shortage in India, enables customers to spend anywhere Visa or MasterCard is accepted. Additionally, most consumers using prepaid wallets are unbanked and do not have access to a physical card. We expect to formally announce and provide more details on this project along with our partners closer to the official launch next month. We are also extremely excited to announce that we have just entered into an agreement with Yes Bank, a growing and leading private-sector bank in India and one that is highly regarded as an early adopter of technology. What is particularly exciting for us is that we are looking to deploy a comprehensive mobile solution, which incorporates not only MVC but also our patented variable PIN as well. We believe that VPIN would be the first-of-its-kind offering in India and will be adopted across all customer channels, replacing static PIN on the card, as well as OTPs for CNP transactions. VPIN leverages our voice biometric technology with our host MVC system to generate tokens, which in this case is the dynamic PIN for every physical card-based transaction or OTP. VPIN is meaningfully more secure than traditional EMV solutions and allow financial institutions to reduce costs forward and drive adoption of their mobile-based offerings. During the fourth quarter, we acquired 44% of Transact24 in Hong Kong, which we expect will complement our existing products and will further expand our product suite and geographical reach. T24 also provides us an entry into the rapidly growing Chinese e-commerce and transaction processing market through its establishment relationship with China UnionPay, Alipay and Tencent. T24 has already been instrumental in helping us identifying an issuer in the U.K. from which we can launch our B2C VC [ph] offering, and we look forward to launching products with them into Hong Kong and other parts of China in 2016. Meanwhile, our mobile value-added services in South Africa continue to go from strength to strength. Umoya Manje has over 4 million customers, who did more than 80 million transactions in Q4. Power Manje has over 0.5 million users, who did more than 300 million transactions last quarter, while My Account [ph] has more than 2 million customers, who did over 3 million transactions in quarter 4. We are now adding prepaid [indiscernible] as the next Manje service. Similarly, Pasavute in Malawi also posted continued momentum, posting over 26 million transactions in Q4 alone, a sequential increase of almost 14% from quarter 3 2015. To wrap up on our mobile-centric business, we are laser focused on building ZAZOO into one of the leading mobile [indiscernible] companies globally, period. We already have built sufficient scale in this business, both in terms of revenue and more importantly, to me anyway, profitability. And with its current rapidly growing pipeline, we will hold ZAZOO to an extremely high standard of delivery. Net 1 and executive management for its part is actively evaluating all possible avenues [ph] through which the value of ZAZOO does not become incumbent by whatever perceived issues may still exist with regard to Net1's valuation. We will naturally update you all as soon as we have any further clarity on our intent to solve this existing conundrum. Finally, for our transaction processes, Herman will provide you some financials and metrics, but both KSNET and EasyPay continue to execute their business plans while delivering steady growth and profitability. EasyPay and FIHRST are naturally an integral part of our card and mobile-centric strategies in South Africa, and these benefits are already noticeable in both of these entities. We look forward to KSNET also playing a broader role more so on the mobile-centric side. To conclude, I'm proud of the achievements of the group in 2015, and I strongly believe that we are positioned for continued momentum for 2016. Thank you all very much for your time, and let me hand over to Herman. Herman, over to you.

Thank you, Serge. I will discuss the key results and trends within our operating segments for the fourth quarter of 2015 compared to a year ago. For Q4 of 2015, our average rand-dollar exchange rate was ZAR 12.04 compared to 12 -- to ZAR 10.42 a year ago, which negatively impacted our U.S. dollar-based results by approximately 16%. We continue to face significant currency headwinds in our operating geographies. The U.S. dollar, which is our reporting currency, has continued to strengthen significantly against the emerging market currencies, and the South African rand yesterday traded at its lowest point in 13.5 years at ZAR 13 to the dollar and is currently trading at around ZAR 12.95 to the dollar. The South Korean won has also weakened by approximately 9% over the last 90 days and is currently trading at its lowest point in more than 3 years at KRW 1,194 to the dollar. As predicted, the stronger dollar progressively had an adverse impact on our fiscal 2015 results, and particularly on our Q4 results. We expect the adverse impact of the stronger dollar to continue in fiscal 2016, with our average operating currency exchange rates for the first half of Q1 2016 already significantly worse than the Q4 rates. Due to the fluctuations caused by the volatile exchange rates in our operating currencies, we provide constant currency comparatives in order to analyze the core operating trends in our businesses. We ended the year with a particularly strong quarter, and I am very pleased with the momentum demonstrated throughout fiscal 2015. You will recall that our prior year or Q4 2014 results included the $27 million pretax or $19 million after-tax recovery from SASSA related to our implementation expenses incurred in fiscal 2012 and 2013. On a consolidated basis, for the fourth quarter of 2015, we reported revenue of $164 million, and excluding the impact of the once-off recovery last year, this represents an increase of 22% in constant currency. We reported fundamental earnings per share of $0.58, which, again, excluding the impact of the once-off recovery, grew by 50% in rand compared to a year ago. Our fully diluted weighted share count for Q4 2015 is 46.9 million shares. Let me now turn to a discussion of our segments and their financial performance during Q4 of 2015. In our South African transaction processing segment, we reported revenue of $59.8 million in Q4 2015, down 32% compared with Q4 2014 in U.S. dollars and down 22% on a constant currency basis. In South African rand, revenue increased 12% in fiscal 2015 compared to fiscal 2014, also excluding the impact of the recovery in fiscal 2014 of implementation costs related to our SASSA contract. The increase in segment revenues exclusive of such recovery was primarily due to low-margin transaction fees generated from beneficiaries using the South African National Payment System and more intersegment transaction processing activities. In addition, revenue from the distribution of social welfare grants grew modestly during the year and was in line with the increase in unique welfare cardholder recipients, net of removal of invalid and fraudulent beneficiaries, and offset by the loss of MediKredit revenue as a result of the sale of that business. Segment operating income margin was 19% and 44%, respectively, and decreased primarily due to the recovery of SASSA implementation costs in 2014. Excluding the recovery of implementation costs, segment margin dropped slightly from 20% in Q4 2014 to 19% in Q4 2015. EasyPay volumes increased again sequentially by mid-single digits despite the fact that as we continue to expand our value-added service offering to alternate channels such as mobile, the volumes and revenues for those services are recognized by their respective units even though they rely extensively on the EasyPay platform and distribution. We began to see some growth through our newly installed biometric and EMV ATMs across South Africa. We expect our South African processing segment margins to be in the low 20% range for fiscal 2016. The margin will be affected by continued rollout of our ATMs during 2016 and inflationary pressures on our cost base in South Africa. Intersegment transaction processing activities are eliminated on consolidation but have a meaningful contribution to this segment this past quarter. International transaction processing generated revenue of $43 million in Q4 2015, an increase of 17% compared with Q4 2014 on a constant currency basis. Revenue increased primarily due to increased transaction processing activities in South Korea during Q4 2015. Operating income during Q4 2015 was higher due to an increase in revenue contributions from KSNET, but partially offset by ZAZOO start-up costs in the U.K. and India. Segment operating income margin in Q4 2015 and Q4 2014 were 17% and 16%, respectively. For Q4 2015, KSNET revenue grew 7% in Korean won to $42 million, while EBITDA margin remained flat at 28% compared to last year. KSNET has sustained local currency growth of high single to low double digits for several quarters now despite the slowing economy and external factors such as the MERS outbreak during Q4. Industry forecasters expect transaction growth to slow modestly in Korea as a result of macroeconomic factors and reforms in the WAN [ph] and related industries going forward. We are optimistic that KSNET can outpace industry growth given its competitive position and value proposition. Our financial inclusion and applied technologies segment revenue was $73 million in Q4 2015, up 14% compared with Q4 2014 in U.S. dollars and 32% on a constant currency basis. Financial inclusion and applied technologies revenue and operating income increased primarily due to higher prepaid airtime sales, driven by the rollout of our prepaid airtime product; growth in lending driven by higher average UEPS-based loans than a year ago; more ad hoc terminal and card sales; and in South African rand, an increase in intersegment revenues. Smart Life did not contribute to operating income in fiscal 2015 and '14 due to the FSB suspension of its license. Smart Life resumed operating activities in early fiscal 2016, following the upliftment of the suspension of its license by the FSB. We have already committed the necessary capital to reignite our insurance business, and we expect our policy numbers to scale during fiscal 2016. We expect to see tangible financial benefits towards the end of fiscal 2016 from this investment, as we first need to establish the appropriate support structures and the required insurance reserves. Our U.S.-based lending book at the end of Q4 2015 was approximately ZAR 496 million compared to ZAR 560 million in Q4 2015 (sic) [ 2014 ]and ZAR 543 million in Q3 2015. The decrease in the lending book is primarily due to compliance with the industry-wide amendments to the South African National Credit Act. These amendments were introduced primarily to address overindebtedness of South African consumers and now require lenders to perform a stricter affordability assessment. Compliance with the amended legislation continued to have a modest impact on our UEPS-based lending business in early fiscal 2016, but have started to normalize now and should return to growth into the second quarter. We do fully agree that prudent and responsible lending is paramount to the success and growth of this industry, and ultimately will result in a stronger and more sustainable book for us. Segment operating income margin was 27% and 28%, respectively, and decreased primarily as a result of more low-margin prepaid airtime and hardware sales. The operating margin of this segment will continue to be affected by the relative contributions of the various businesses in this operating segment and introduction of our EasyPay Everywhere product. We expect significant expenditure on marketing and establishment costs for this exciting product during Q1 and Q2 of fiscal 2016. Corporate and eliminations includes amortization of intangibles, stock-based compensation, U.S. legal expenses and general corporate and overhead costs. The decrease in our corporate expenses in Q4 2015 resulted primarily from the noncash charge related to the equity instruments issued pursuant to our BEE transactions in Q4 2014 and lower U.S. government investigation and U.S. lawsuit expenses, partially offset by increases in general corporate audit fees, executive emoluments and other corporate head office-related expenses. Our Q4 2015 net interest income increased to $3.4 million, driven primarily by lower average debt outstanding and higher average cash balances during the period. Capital expenditures for Q4 2015 and 2014 were $11.6 million and $6.6 million, respectively, and relate primarily to the rollout of ATMs in South Africa and the acquisition of payment processing terminals to both expand and replace our card [ph] processing footprint in Korea. At June 30, 2015, we had cash and cash equivalents of $118 million, up from $59 million as of June 30, 2014. The increase in our cash balances from June 30, 2014 was primarily due to the expansion of all of our core businesses, and to a lesser extent, the cash conservation resulting from the sale of loss-incurring businesses, offset by provisional tax payments, investments, capital expenditures and the scheduled Korean debt repayment in October 2014. We continue to fund the group's operations and capital investments utilizing our cash reserves and cash generated from our business activities. During the next 12 months, we expect primary uses of cash to be the funding of our financial services offerings; investments in our new and high-growth businesses such as EasyPay Everywhere, Smart Life, ATMs and international expansion; the servicing of our debt; share repurchases; and strategic acquisitions. Our effective tax rate for Q4 2015 was 33% [ph] and was higher than the South African statutory rate of 28% as a result of nondeductible expenses, including legal and consulting fees. Our tax rate will fluctuate depending on our intention regarding undistributed South African earnings and the timing of any payments. We expect our effective rate for 2016 to be in the 30% [ph] to 35% range. Our share count remained largely constant at approximately 46.7 million shares. As Serge has explained, we are very excited about our prospects for the future and continue to build on the foundation we have laid for a number of opportunities and initiatives. We expect to sustain the momentum in our business and continue our product, client and geographic diversification, and accordingly, for fiscal 2016, we anticipate our fundamental earnings per share to be at least $2.57, assuming an updated constant currency base of ZAR 11.43 to the dollar and a share count of 46.7 million shares. With that, we will gladly take your questions.

[Operator Instructions] Our first question comes from Dave Koning at Baird.

Yes, and I guess my first question, just when we look at fiscal '16, there are so many good things happening right now, but if we isolate to the two things that I think are going to be the big profit drivers this year, kind of materially contributing to kind of the guidance growth, are the Smart Life platform that generated 0 revenue in fiscal '15, and then the EasyPay Everywhere account. So first, just on the Smart Life part, it was 0 really in fiscal '15, right? And then what kind of a potential estimate for revenues in fiscal '16 from that?

As far as Smart Life is concerned, I'm not sure that I'd put it in the top 2 in terms of what will drive the guidance in terms of our fundamental earnings per share for the next year. It certainly is a significant future contributor for us. But for the next 3 quarters or so towards the end of fiscal 2016, we're obviously going to scale up our activities quite significantly. You will appreciate that during the last 2 years of the business largely having been in limbo, we didn't employ all of the required support structures. In fact, we had to let some of them go in anticipation of the upliftment. So over the next couple of quarters, we obviously are going to spend quite a bit of money making sure we've got all the required support structures in place. We will obviously also spend quite a bit of money on marketing initiatives. We are going to scale up on the sales side quite significantly. So what we expect to see is the scaling of the number of polices sold specifically over the next 3 quarters. I think that's going to be the most important measurement for us. In terms of fixed contribution to our profitability, I don't expect to see that until the end of fiscal 2016, so probably the third to the fourth quarter after we've invested into the cost structures we need, as I've indicated. We obviously also need to establish the relevant underwriting and insurance reserves as we scale up on our book. So as far as Smart Life is concerned, I think the most important measurement likely is going to be the uptake of the policies over the next year or so. In terms of what should be in the top 2, to get back to your initial statement, EPE obviously is a very important component and then certainly it should be right at the top. And I think second most important is what we think we can achieve through all of the various ZAZOO initiatives in fiscal 2016.

Okay, well, that was really good color. Maybe than what you could do is, I know you said 150,000 accounts per month from EasyPay Everywhere. How much revenue per account do you think those can generate?

We don't really disclose the revenue per account. It obviously will be a combination of the product mix that our EasyPay Everywhere clients will take up. That is the moving average at the moment. So depending on the transaction profile of our specific clients, which by the way, also differs from whether they're rural or whether they're urban customers in terms of their usage of ATMs, point-of-sale devices and the uptake of value-added services, we will, I think, need another quarter or 2 before we have a trend that is more predictable in order for us to give you a number that we're comfortable with.

Dave, perhaps to give you a little bit more information. You must remember that the focus that EPE is not the same as what it were in the days of the SASSA contract. In other words, we are not targeting only people that are in the lowest income group, we are targeting people that are certainly a little bit more top of the food chain. So the differentiation between the 2 is that the people that have a little bit more disposable income tend to want other products or different types of products that, in fact, the low income groups simply can't afford. So by definition, if you work on the point of focus [ph] that the SASSA account used to generate around ZAR 16 or whatever it was, ZAR 16.44 per month per person, we obviously believe that as we're going up the food chain, the generation of the amount that can be generated by the next group of EPE clients is going to be substantially higher than that.

Yes, yes. That makes sense. Good. And then I guess the last thing, free cash flow, as you said, pretty good in Q1. I mean, you could end Q1 with over $2 per share of cash flow, and you did mention buybacks in your uses of cash kind of commentary towards the end. Is that something -- it just seems like at the current stock price, even with the big move, it's so accretive to buy back even a modest amount of shares.

Well, Dave, certainly from our perspective, we have an approved repurchase program in place. So we can act whenever we feel it's the appropriate time to do so. We are going to be focusing in Q1, obviously, very specifically on spending quite a bit of money on the marketing and rollout establishment costs for EPE and Smart Life. And as Serge indicated, there are also 1 or 2 other opportunities that we are exploring at the moment that we believe may add quite a bit of capacity to our existing initiatives or creates opportunities for us in terms of how we distribute specific products. An example of that would be VCpay, where it's quite important for us to try and identify the most appropriate method of issuing these cards without paying away a significant chunk of the transaction economics to the only established players in the market. So those are going to be the primary uses of our cash. We have a debt repayment due in April 2016, but we also just need to bear in mind that, to the extent that we have surplus cash available, we will certainly be doing some opportunistic share buybacks when the opportunity presents itself.

And Dave, we've never been very good at doing share buybacks, as you know, in the past. And the fundamental reason for that is because we believe on the one hand, doing a share buyback might somehow fictitiously increase our earnings. But that's not who we are, we don't have to be fictitious about it. We can increase our earnings without doing share buybacks. So I would rather invest the money, whereby I know that I can get a far better return on that investment than simply doing a share buyback, which gives you a temporary uplifting something, while we can actually get a continuous uplift by investing the money correctly. So I know lots of people won't agree with me, but it's always something that until we reached the stage whereby we no longer believe we can grow our EPS, then we will start doing what everybody else does and then we'll start doing the share buybacks.

Our next question comes from Gotham Holdings, Russell Anmuth.

So where do we stand with the Hawks [ph] at this point?

Russell, we are still very much in contact with vendors often as we are able to contact them because they're supposed to contact us. And the very last thing we heard is that they were concluding the investigations, and we were hoping, in fact, that by this call, we could have come forward and said they've concluded the investigation and this is the report that has been issued. Every time we do that and every time they come back, they keep on telling us that there is something else which they're busy looking at, which has absolutely nothing to do with us. And that they also tell us, it has nothing to do with us. But they still have to have the full file ready for the prosecutors to actually come out with their conclusion, which, of course, on our side, we're only interested in one conclusion, and that is the one that's going to clear us. But because of there are a number of other parties involved in this particular case, we can't say if it's going to clear everybody else. And I think they can't come out and clear us without actually clearing everybody else or not clearing everybody else. So I think they are waiting to conclude what they're supposed to do. And why it's taking so long? I do not know, but there, again, the DOJ is exactly the same, if you think about it. So it sounds to me that these organizations have got very specific ways of going about their business, which obviously we don't understand because we're business people. But at the end of the day, I actually think that the result is not going to be any different to what we were expecting and are more and more confident that, in fact, we will get a clear bill of health from them.

Okay, okay. Thank you. All right. To get down to business. With MasterCard, are you still pursuing jointly with MasterCard countrywide deals that you've spoken about in the past?

Of course, of course, we haven't given up. MasterCard is a very, very large organization with basically lots of people to talk to before you can get any decisions. We're lucky, we have a very flat management structure and we can make decisions in 20 minutes. They can do the same thing probably in 20 months. So one thing we must understand is that we are working with them. In fact, we have what we believe is an ever-increasing relationship with them. We get along very well, we talk about different things. We're just about to certify new EMV/UEPS pass which is going to have contactless, in other words, your typical sort of pay pass functionality. They're already prepared to help us to fund with the replacement of our cards because they want to introduce their product. So there is no doubt there is a lot of stuff going on with MasterCard. What actually is going to be the big benefit for us is, for example, with the World Food Programme, to have a world tender, whereby together with them I think we have a better than average, I would think, better than average, like 90% chance that we could win that program. And as you can see, if we can then replicate what we've done here, what we're doing in Nigeria, what we're likely to do very soon in Uganda, and we can replicate that model, let's not dream but replicate it in 80 countries, then intendedly [ph], I think we could become quite a brand on the worldwide basis, and I think that's where MasterCard and people like the IFC are going to be able to assist us to achieve that goal.

80 countries. Is -- that would obviously will be over a multiple of years. And again, would that -- that would not encompass boots on the ground.

Well, at the moment, those 80 countries represent more than 50 million people that are receiving grants. Now if we -- like the first one, which unfortunately, I can't give you the name because I told you not to give you the names, so I'm not going to give it to you. But there is one country we're going to start probably the next month or two, which now all the terms have been agreed, and in that particular country, we have been asked to actually go in and to actually do the operations because a lot of people have got things on spreadsheets and papers and sheets of papers and verbal things, but they're not very good at actually doing it. We're not very good at marketing it, but we're very good at doing it. So I think they've decided that initially to make sure this project has the best possible chance of success, they've asked us to go in and to actually do it as well, which I think is a good idea. On top of it, they pay for us to go ahead and to do it. So we want to do the implementation of the operations, then hand over to a local team after we've trained them and we've given them the blueprint of what needs to be actually done and how it should be done. Our job will then simply become a question of monitoring that, in fact, the procedures that we've set and the processes that we've set and the blueprint that we've designed is in fact being followed by the people that are going to become operational. Otherwise we would have to be in 80 countries, and it's unlikely we can achieve that.

Okay, okay. One follow-up. Are you still working or considering to work with various handset companies to integrate your various solutions and/or other mobile service providers outside of MTN?

Oh, absolutely. There's absolutely no doubt that, that is one of our visions. And I think I mentioned before that the B2C model, which has been used by many people, is an incredibly expensive model to implement. Simply because the customer acquisition is always expensive. We believe that the B2B, and certainly the B2B to C is quite a nice model simply because it allows us to get paid from a business point of view but still to have access to the customers directly, which means it almost means that some people are prepared to share with us and to pay us, even if it is a smaller amount, to actually do customer acquisition as well. So it sort of kills two birds with one stone, but we believe that's the first, probably, the easiest way to scale very, very quickly, and then giving us the opportunity to gather all of these individual customers together and to then make them our own customers as well. So that's the strategy we've deployed, and you can see through some of the announcements that they're starting [ph] to actually work for us. We think this is a good, easy way to get in and it's easier to sign a business deal than a customer deal. Let the businesses sign the customers, but let the customers be our customers as well, which means you do the two things in one go.

So would somebody like Samsung, for example, or some of the other Android players who've introduced their own branded mobile wallets of sorts, would they be...

Some of them will definitely do it, there is no doubt about that, and I mean, we see all operators to be a potential channels for us. But as you know, a lot of operators today are all going into that type of stuff themselves. If you look at Samsung, for example, they raised on [ph] -- I don't know what to call it anymore, because I've lost complete understanding of what people call mobile wallets or whatever they call them. Because really it's almost like an agglomeration of what you got in your actual wallet in your own pocket, which now you're moving onto the phone. Now candidly, we don't do that, as you know. We are -- personally, I think it's a complete waste of time. But that's something that they want to do, and they are fighting against other big players. So while they're doing these things internally, they don't really have much time to make a company like ours because we're outsiders, while they've got the internal strategy groups that are doing this. So when necessary, we certainly will work with them. And if they want us to work with them, we will do so. The only thing I can assure you, that we don't rely on them to do anything for us. Microsoft might be a little different in this particular field, because we already have a contract with them. We're already doing some loading, as you know, of phones, and now we've actually been given the go ahead that we can load the application on the worldwide basis with Microsoft before it was restricted to South African. So we are starting to do more with larger groups rather than less, right? But once again, it's just a question of accessibility to channels. But like before and like I mentioned to you before, we rely on ourselves before we rely on other people to generate business for us.

Okay, okay. Makes sense, you have to drive it yourself. On India...

I'm sorry, Russell, would you mind if we take -- if you rejoin the queue. And I think we should have [ph] someone else.

Sure, sure.

[Operator Instructions] Peter Luber from Post Street Capital.

Just on EasyPay, you guys have outlined before that it would take about 1.5 million users at ZAR 16 per month to hit that SASSA EBIT level that you're earning today, and with 150,000 a month, that cadence is sort of by March 2016, you'll hit that. If you have a more affluent customer spending, spending more, is it possible that you could hit that level of SASSA EBIT kind of earlier than March at that 150 cadence? And then the follow-up is just with all -- with the line of sight to 2016 EPS, you still have that 2- to 3-year line of sight to $4 of EPS?

Again, I mean, you're absolutely right. Obviously, it's going to depend on the customer composition. So we based our figures on going for the lowest possible income group that we could possibly think of. In other words, we're looking -- we always like to work with the worst-case scenarios rather than the best-case scenarios, because typically the world today, it's probably the worst-case scenario that normally wins. So first, we would like to start what's the worst case, if, of course -- and it's starting to show us that, in fact, it might go that way, whereby we could end up with more than 30% or 40% of our customers might not, in fact, be the lowest income groups. And if that happens, there's no doubt that this is going to make the period of stand [ph] that we will require to reach equality and if -- as if and when we would lose the SASSA tender, we might achieve that faster than expected. But we're talking about the different type of customers, which means the different products. For example, we're just about to launch our own inter-web or web-based banking service, because those customers are a little bit more sophisticated so the type of channels and products they require is different to lower income groups. So to me, let's not put the cart before the horse, I believe that we still need another good quarter or up to 6 months from now to ramp up and to make sure that we scale what we want to do, and I think then the metrics that you are talking about will become far more visible than what -- that what we have after the last 6 weeks. All I can tell you after the last 6 weeks is that we are basically on target in terms of what we were expecting to get, which is great news. But we also know what products are currently being used. We're just a little bit surprised that, in fact, we're getting quite a large number of non-low-income-group people actually also joining the banking platform, which, of course, we're really excited about because it gives us also some opportunities. So give us another quarter or 2, and then we'll be able to give you far more detail in terms of the makeup of everything, okay? And -- we, we're -- sorry. Okay. That's it. Sorry.

We are on track for $4 a share. Are we on track for $4 a share?

Yes, but he didn't ask that, I think. I didn't catch that piece, sorry. The line went little bit dead for a while. That you're talking, are we are on track for $4 a share? Well, we are a growth company, and if you look at the numbers that Herman is already put down on the table, certainly this is something that we believe is a target that we can achieve. There is absolutely no doubt in our mind. I think the company is starting to really scale much faster. The momentum, I think, is accelerating. And candidly, between the EPE -- and I mean we keep on talking about EPE in South Africa, but I think where the real EPE growth is going to happen is when we actually launch the same products in Nigeria and Uganda and other developing economies, either with or without The World Food Programme. And of course, it's ZAZOO because already you've seen the number and that is something that is growing at 30%, 40%, in some aspects, 70% per annum. So that's where we really see this scale is really going to happen. Those 2 products, I think, are going to become gigantic very, very quickly.

We have time for one more question from Russell Anmuth of Gotham Holdings.

So Dhruv looks like he's making excellent progress in laying the groundwork in India, right? It's a very difficult country to enter and do business in. How do you think, just how do you think India plays out in a little bit, if you can just walk us through it a little bit in terms of how product gets in the marketplace, and how you start to realize revenue and actually when cash flow streams start to come in?

Well, the Indian -- and you're right, Dhruv is making some headways, he is, in fact, sitting in front of me right now, and I'm pleased to see that he is finally making some headways. So he is actually doing a great job there and you're right, India is not an easy market. I think I did mention that before, whereby you need 15 [ph] million people before you can make a profit, all right. So it appears that maybe -- I may be wrong -- maybe we need far less than that to be able to make a profit. I think it's a question of finding the right niche. I think we found it. And there's no doubt that initially the B2B to C is going to be the way to go in terms of generating revenues with very little cost, so very little investment, but at the same time, creating this so-called customer database that we can target ourselves. So long term, you're going to see that we're going to go more B2C. And by the way, as you know, we're involved with people like Oxigen and there's a number of things in the pipeline that we're about to finalize as well that we will be talking about in the next 4 to 6 weeks, I'm hoping, which are very exciting as well. And there are couple of other things we're getting involved with in India as well, which involve point-of-sale, which involves ATMs and involves [ph] switching. So there's a few other things that we are doing to make sure that we build the same sort of blueprint, for lack of a better word, as we've managed to build in South Africa. Now in India, of course, the opportunities are really endless because you can work nationally or on a state-to-state basis. But our plan is very focused for now. For now, it's B2B to C, going to B2C and making sure that the variable PIN and certainly our VCpay products are going to be, for lack of a better word, issued and accepted just about everywhere. And we don't really care if it is done -- if we're doing it through banks, if we're doing it through other financial organization, if we're doing through certain network operators or switches. We don't really mind. We're going to do it as long as it is our technology that's being deployed. We will then concentrate, once we got that -- this whole story, once we built the infrastructure, everything that you then sell on top of that infrastructure becomes cheaper to the extent whereby the next product goes -- flows right down to the bottom line, and that's the way we believe that one can make money in India. It's not to spend billions to deploy infrastructure, it's to spend as little as possible and to start building more and more products on top of each other whereby at the end of the day, the last couple of products become free to distribute but actually add to your bottom line, making it very, very lucrative. So that's the plan, and we'll certainly keep our investors very much involved in letting you know how well that plan is working or not.

Does that go state-by-state? Is that how Dhruv is focused?

I think Dhruv is doing a bit of both. He is working both at the national level, but it's like anything when you have the state-by-state level, even if you sometimes do things at national level, it is only the national people are going to let the state do what they want. So you go to work in generic manner at the state level and also work at the lower level to make sure that, in fact, the projects are going to be accepted. So the states normally are running what we call government projects, but the government projects have got to be cleared by the central government, first and foremost. So there is a lot of work that has to be done continuously in India to keep up with legislation because they have a lot of it, they tend to change a lot of it. The only thing that we are incredibly interested about and excited about is because India seems to be incredibly proactive, and their vision of the payment system is very, very similar to what we're doing. Financial inclusion for them is absolutely paramount, and tend to be they're not afraid of passing the rules and the laws that are going to stop people from stopping it from happening, and by doing that, they're actually enabling us to actually doing it ourselves. So that's what we're really excited about in India. In the next couple of months, 6 months or so, we should start seeing exactly what sort of money can be made, depending on the number of customers we're going to have.

How does Korea look? Are you able to build on the considerable position that you have there with -- what you've got with more exciting, value-added technologies and services?

Once again, the answer is quite simple. In Korea, we know that this is a very advanced country when it comes to technology, and we've now identified that really to get in South Korea, to ride on what we've done, is going to be mobile payment, for lack of a better word. And once again, not so much through a variable PIN, although it sounds to me, it would be quite a good for them because I think they need it. But certainly, through EasyPay and contactless payments, that's really where we believe that we can ride on our current infrastructure.

Ladies and gentlemen, on behalf of Net 1 Ueps, that concludes today's conference. We thank you for joining us. You may now disconnect your lines.